Retirement savings is a simple enough concept to understand, but a very difficult one to successfully implement. Financial professionals know this all too well with regard to their clients who are seeking long-term investment assistance. Now, a study from LIMRA has confirmed what many financial professionals have likely known for some time.
After surveying people between the ages of 45 and 75 who had more than $100,000 in investable assets, LIMRA found that 56 percent of them did not have a strategy for creating income in the course of their retirement. If they did have a strategy, it mostly involved making withdrawals from their savings. This is generally perceived as a riskier option, because adverse economic factors may prevent retirees from saving enough to see them through the rest of their lives after work.
Guaranteed income rarely considered
Looking into the study in more detail, LIMRA found that about 60 percent of respondents who had a strategy for retirement income planned to withdraw savings only occasionally. However, 32 percent said they would make regular withdrawals from savings, either as a constant dollar amount or a percentage of their savings. Relying solely on savings withdrawals could expose retirees to risk. As LIMRA noted, even if one was to withdraw at the recommended rate of 4 percent per year, a volatile investment market could make those returns uncertain.
Even more uncertain is the precise length that savings will need to last in retirement. According to the National Institute on Aging, the average man retiring at 65 can expect to live another 17 years, and women another 20. In addition, there is around a 50 percent chance that one member of a 65-year-old couple will live beyond 88, and a 25 percent chance one will live to be 97. It is essentially impossible to plan for these kinds of uncertainties with a retirement plan based solely on savings, but a majority of American retirees do just that.
As LIMRA noted, converting at least some of a household’s savings in guaranteed income for use in retirement is the best and least risky strategy for ensuring a comfortable time spent after finishing work. Financial advisors and other professionals would do well to educate their clients on the best strategies to achieve this goal, as well as explain why guaranteed income is the best course of action.